Hyundai Motor Revving Up Indonesia's EV Potential

“We have to boldly change the commodity-based economic structure to downstream and industrialization, [to] become a powerful nation based on the development of technology innovations.”

In May of this year, Widodo said,“For years, we have always exported raw materials. This is a mistake that we must not repeat.”

Indonesia is the world's largest producer of nickel, the key ingredient in LG Energy Solution's NCMA (Nickel-Cobalt-Manganese-Aluminum) batteries. Indonesia accounts for about 20% of the world's global nickel reserves and is now home to more than 40% of global nickel production, according to US Geological Survey and other source data.

Widodo reinstated a previously unsuccessful ban on the export of raw nickel ore in 2020. This was followed by bans on the export of bauxite (aluminum ore), iron ore and unprocessed copper, lead, zinc and gold – although restrictions have been eased to give companies time to construct smelters.

This lurch toward so-called“resource nationalism” initially drew heavy criticism, even in Indonesia. In April 2022, the Jakarta Post wrote,“Indonesia's claim that banning nickel exports spurs downstreaming is
questionable.”

But the paper soon changed its mind, writing in August 2023 that“Indonesia can take full benefit of resource nationalism... The government is taking bold steps toward unlocking the full potential of its rich mineral resources by implementing a forward-thinking export restriction policy on minerals.”

Led by stainless steel and nickel matte, which is used in the manufacture of battery materials, the total value of Indonesian nickel product exports has jumped by more than 12 times since the ban on exports of unprocessed ore was reinstated.

The European Commission (EC) reacted by taking the issue to the World Trade Organization (WTO), stating that the“export ban on nickel ore and domestic processing requirements on nickel ore and iron ore... illegally restrict access for EU steel producers to raw materials needed for stainless steel production.”

The WTO ruled in favor of the EU in October 2022, but Indonesia appealed, and the case remains unresolved as the US continues to block appointments to the WTO's Appellate Body.

In March 2024, Widodo said,“If there will be a second chance at appeal, we will submit another one. In short, don't back down until our nickel-based industries are ready to operate.”

He added,“If we back down, don't expect this country to become a developed country. We will be sued again; there will definitely be someone who will sue again. We will fight again.”

An unidentified Indonesian official quoted by Japan's NHK was more relaxed about the situation.“Indonesia has rich natural resources and a large population,” he said,“We are one of the 'haves.' It may take time, but Indonesia has the potential to become a developed nation without relying on major powers.”

The Chinese reacted to Indonesia's export ban by building dozens of smelters in the country, until they accounted for more than 80% of the locally produced nickel used in EV batteries.

According to the Center for Strategic and International Studies, a Washington, DC-based think tank, the number of nickel smelters in Indonesia grew from 13 in 2020 to 43 by July 2023, with another 28 under construction – most of them controlled by Chinese companies.

The US, which has only 1% of the world's nickel reserves, is ringing alarm bells. Accordingly, under a Comprehensive Strategic Partnership established in 2023, the Biden administration has been trying to convince Indonesia to diversify away from China.

This effort includes a proposed Critical Minerals Specific Free Trade Agreement that would allow Indonesian companies in the EV supply chain to receive tax credits under the US Inflation Reduction Act.

According to the US-ASEAN Business Council, it would be modeled on a similar agreement between the US and Japan reached in March 2023. That deal's provisions include:

• Domestic measures to address non-market policies and practices of other countries affecting trade in critical minerals;
• Best practices regarding review of investments within their territories in the critical minerals sector by foreign entities;
• Engagement, information-sharing and enforcement actions related to labor rights in critical minerals extraction and processing; [and]
• Promoting employer neutrality in union organizing and operations;
• Non-imposition of export duties on critical minerals

Obviously, these measures are aimed at countering both resource nationalism and China's mining and smelting industries and are seen by some as US interference in the partner country's domestic affairs.

Probably because of this, the US-ASEAN Business Council reports that the Indonesian government has expressed interest in a more limited agreement.

Even so, like the US blockade of the WTO Appellate Body, this is all working to the advantage of Indonesia, whether intended or not.

On July 26, Reuters reported that Chinese companies are trying to cut their stakes in Indonesian nickel smelters to 25% or less in order to be eligible for US tax credits. This reduces the risk of a near-monopoly, giving Indonesia more room to maneuver.

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The Australian Strategic Policy Institute (ASPI), an independent think tank, writes that“Indonesia's success in deploying Chinese capital and innovation to become the dominant force in the global nickel industry has been achieved in the face of concerted opposition from the European Union through the World Trade Organization.”

“Over a decade, the high value-added share of Indonesia's nickel exports has gone from 8% to 100%. Its mine output has risen nine-fold, and it is putting rivals, including nickel miners in Australia, out of business because they cannot begin to match the capital and operating costs of the Indonesian operations,” ASPI said.

“Enabling Indonesia to transform its place in one of the most important new energy industries could be seen as the most significant achievement yet of China's Belt and Road program.”

Meanwhile, HLI Green Power is starting with battery manufacturing capacity sufficient to equip 150,000 Hyundai Motor EVs per year, with plans to triple that figure to 450,000 when market demand grows.

In comparison, Asian Automotive Analysis reports that about 1.2 million passenger cars were produced in Indonesia in 2023, most of them by Japanese automakers Toyota, its affiliate Daihatsu and Mitsubishi Motors. This near-monopoly is also under threat.

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